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Mountain Sports Inc. recently issued 2 - year bonds paying 1 0 . 5 % per year. The real risk - free rate of return

Mountain Sports Inc. recently issued 2-year bonds paying 10.5% per year. The real risk-free rate of return is 2%, inflation is expected to be 1% the first year and 4% the second year, and the MRP is 1%.
(a) What is the inflation premium on this bond? 2.5%
(b) What is the default risk premium on this bond? 5.0%
(c) What should the rate on 3-month Treasury bills be?

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